Lawyers, patent &
trademark agents

Defining IP 'Rights' in Contracts

From time to time, our office is consulted with respect to copyright in technical drawings, web site content or other material created by an independent contractor. The heart of the dispute is often an allegation of non-payment and the independent contractor is attempting to prevent the continued “use” of their work until the dispute is resolved. Although the written contracts will often expressly prohibit continued “use” of such works in the event of non-payment, they routinely fail to provide a definition for “use”.

Unfortunately, “use” is not a defined term under the Copyright Act. The fact is that nothing in the Copyright Act prohibits the “use” of a copyright protected work. So relying on the term “use” in this context introduces ambiguity into the contract.

This is not an uncommon challenge when interpreting contracts that purport to grant or restrict rights in intellectual property, but don’t track the language of the relevant legislation. This can lead to profound misunderstandings between the parties as to their respective rights at the very outset of their relationship. It can also create serious challenges if required to take steps to enforce the contract.

Statutory Rights in Intellectual Property Vary by Form

By statute, the owners of intellectual property are granted a very specific bundle of rights. Those rights vary for each form of intellectual property.

For example, the term “use” does not have a statutory defined meaning for copyright or industrial designs. In contrast, the term “use” does have a very well defined and much litigated meaning in respect of trademarks. It is also an acceptable term for granting rights in patents although some consideration should be given to the nature of the subject invention in crafting such a clause.

When drafting any clause purporting to grant or restrict rights in intellectual property, it can be helpful to revisit the relevant sections of the act governing the subject property. If the contract involves multiple forms of intellectual property relating to a single product or business model, it may be prudent to deal with each separately by, for instance, including a grant clause tailored to each form of intellectual property in which rights are to be granted. Franchise agreements are a good example where this issue routinely arises.

Copyright

Section 3(1) of the Copyright Act grants the owner of copyright “the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever, to perform the work or any substantial part thereof in public or, if the work is unpublished, to publish the work or any substantial part thereof”.

This section goes on to provide a long list of incidental rights that are considered to be “illustrative” of the broad rights listed above rather than independent sui generis rights. They include, inter alia, the sole right to:

  • to make a translation of the work,
  • to convert a novel and other non-dramatic work into a dramatic work and vice versa,
  • to make sound recordings, films or other mechanical recording of the work,
  • to communicate the work to the public by telecommunication,
  • to present an artistic work at a public exhibition for a purpose other than sale, and
  • to rent the work.

In sum, the recommendation would be adopt the terms “produce”, “reproduce”, “perform” and “publish” as applicable when drafting clauses that grant or restrict copyright in a work. If it is necessary to be more specific, references to terms like “translate”, “convert”, “exhibit”, “rent” and “communicate by telecommunication” may be adopted instead. If deemed absolutely necessary to adopt another term like “use”, provide a definition relevant to the work in question and if possible use the above terms when crafting your definition as much as possible.

Trademarks

Section 19 of the Trademarks Act grants the owner of a registered trademark “the exclusive right to the use throughout Canada of the trademark in respect of those goods or services”. Under section 4, a trademark is deemed to be “used” in Canada under narrowly defined circumstances:

  1. A trademark is deemed to be used in association with goods if, at the time of the transfer of the property in or possession of the goods, in the normal course of trade, it is marked on the goods themselves or on the packages in which they are distributed or it is in any other manner so associated with the goods that notice of the association is then given to the person to whom the property or possession is transferred.
  2. A trademark is deemed to be used in association with services if it is used or displayed in the performance or advertising of those services.
  3. A trademark that is marked in Canada on goods or on the packages in which they are contained is, when the goods are exported from Canada, deemed to be used in Canada in association with those goods.

Critically, advertising a trademark is generally not considered to be “use” of the trademark in association with goods.

With respect to trademarks, the problem is often in adopting a term other than “use” to identify the rights granted or restricted by the contract. For instance, I was once retained as counsel in litigation over a contract which purported to “grant rights in the mark” to another party for Canada. After signing the contract, the first party thought it had granted a license to use the trademark in Canada and the second party thought it had received an assignment of the trademark for Canada. This confusion ultimately led to an action for trademark infringement and a trademark opposition proceeding.

In sum, the recommendation with respect to trademarks is to adopt the term “use” and avoid other terms like “in”, “to” and “for” and “adopt”. Interestingly, the word “adopt” has a separate and distinct definition under the Trademarks Act so it should be avoided unless relevant.

Patents

Section 42 of the Patent Act grants the patentee “the exclusive right, privilege and liberty of making, constructing and using the invention and selling it to others to be used” for the term of the patent.

The exclusive rights of the patentee are generally treated as separate and independent rights. For instance, a licensee who is granted the right to “construct” an invention does not necessarily have the right to “sell” the products that it constructs. Consequently, it is important to list each of the rights to be granted or restricted by the contract. Omissions can be material.

For contracts with international scope, it can also be important to note that, at present, patentees in Canada cannot rely on their patent rights to control imports and exports. It can also be challenging to rely on other intellectual property rights like trademark or copyright for this purpose. If a party wants to control the international channels of trade through which their goods or their invention is distributed, it should attempt to do so by way of contract.

It is my understanding that US law may be different with on this latter point and that this difference is often a point of contention in trade negotiations. With the upcoming negotiations respecting NAFTA, the law may be subject to change in the future.

Industrial Designs

Section 11(1) of the Industrial Design Act, grants the proprietor the exclusive right to,

(a) make, import for the purpose of trade or business, or sell, rent, or offer or expose for sale or rent, any article in respect of which the design is registered and to which the design or a design not differing substantially therefrom has been applied; or

(b) do, in relation to a kit, anything specified in paragraph (a) that would constitute an infringement if done in relation to an article assembled from the kit.

Like patents, the exclusive rights of the proprietor in an industrial design to “make”, “import”, “sell” and “rent” are generally treated as separate and independent rights. So, again, omissions can be material.

Conclusion

While there is no prohibition against using alternative terms to define the intellectual property rights granted or restricted by contract, the interpretation of the contract will be more certain if it references the language used in the relevant legislation.

If a different term is adopted, it would be wise to include a clear definition to avoid ambiguity.

 

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about specific circumstances.